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Posted: Monday 10 June, 2013 at 10:14 AM

S&P raises US rating outlook to stable

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A falcon perches on the Statue of Liberty in New York. Standard & Poor's affirmed its credit rating for the United States at AA+ on Monday but raised its outlook for the rating from negative to stable.
By: Paul Handley, WASHINGTON (AFP)
Comments    0 Recommend    2

    (Washington, USA) - Standard & Poor's affirmed its credit rating for the United States at AA+ on Monday but raised the outlook from negative to stable, citing firm economic growth and a stable fiscal situation.

     

    S&P also said the renewed political fight over the country's debt ceiling and long-term deficit was not likely to repeat the showdown of mid-2011 that threatened to force Washington into default and led to the shock downgrade from a top-flight AAA rating.

     

    The agency said it expects the US economy to grow at the same pace or better than its peers and was underpinned by the US dollar's status as the leading world reserve currency.

     

    In addition, it said, stronger-than-expected private sector growth as well as improved government finances due to large payments from mortage financers Fannie Mae and Freddie Mac have lowered forecasts for US deficits.

     

    "We believe that the US monetary authorities have both the strong ability and willingness to support sustainable economic growth and to attenuate major economic or financial shocks," S&P said.

     

    With the improved picture, S&P said, the federal deficit will fall to about six percent of gross domestic product this year and to less than four percent in 2015.

     

    At the same time, it forecast government debt as a share of GDP holding stable for the next few years at 84 percent, which "would allow policymakers some additional time to take steps to address pent-up age-related spending pressures."

     

    S&P downgraded the US from AAA in August 2011 as Democrats fought to a standstill over increasing the borrowing ceiling, necessary to finance the ongoing fiscal deficit.

     

    It also placed and kept the country on a negative outlook, saying the political stalemate was compromising its ability to implement needed deficit reduction strategies.

     

    Raising the outlook to stable, S&P said, means that the chance of another downgrade in the near term is less than one in three.

     

    It reiterated though that "increased partisanship" and a stiffening ideological divide among policy-makers has prevented establishing a long-term plan to deal with the fiscal deficit challenges.

     

    "We believe that our current 'AA+' rating already factors in a lesser ability of US elected officials to react swiftly and effectively to public finance pressures over the longer term in comparison with officials of some more highly rated sovereigns," it said.

     

    "And we expect repeated divisive debates over raising the debt ceiling."

     

    On the other hand, it said, it does not expect a repeat this year of the mid-2011 impasse over raising the borrowing ceiling, even though the ceiling will need to be raised by around October..

     

    "Although we expect some political posturing to coincide with raising the government's debt ceiling... we assume with our outlook revision that the debate will not result in a sudden unplanned contraction in current spending -- which could be disruptive -- let alone debt service."

     

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